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Still more upside to InterDigital, says Roth

The stock has been on an incredible run this year, but Roth Capital Partners analyst Scott W. Searle sees more upside to wireless patents company InterDigital (InterDigital Stock Quote, Charts, News, Analysts, Financials NASDAQ:IDCC). Searle delivered an update on Thursday, saying the company has a clear path to earnings growth over the next few years, with lots of potential in the video streaming sector.

Last week, Roth Capital hosted a call with Interdigital President and CEO Liren Chen to talk about progress in the business, where the company had a successful UK High Court outcome with Lenovo, while its Samsung arbitration continues in line with prior disclosed timelines and parameters and its CE video IP monetization continues to build momentum.

“With multiple technologies feeding this opportunity (largely video codecs/compression IP buffeted by WiFi and core cellular solutions), we expect CE momentum to continue into key segments such as TVs/monitors, laptops, etc., comprising over a 400 million annual unit opportunity,” Searle wrote.

On IDCC’s IP video, Searle called it a key enabler but one which has yet to be monetized in the currently $300-$400 billion market (and en route to $500 billion by 2026). Searle said the sector uses standards-based compression solutions that improve performance and reduce transmission and storage costs, effectively essential tech. 

Searle said the opportunity is huge for InterDigital. Providing perspective, the analyst said that a $0.01 per month fee, for example, across the top ten global streaming platforms would translate to an annual $100 million+ or about $3.00 per share in earnings.

“While early, we believe this opportunity has been actively developing over a multi-year period and expect this model to emerge within the next couple of years (Note: this is not built into our current expectations),” he said.

IDCC shares are up about 90 per cent year-to-date, but Searle has maintained a “Buy” rating on the stock and $114 per share target, which at press time translated to a projected one-year return of 19.6 per cent.

Searle is forecasting InterDigital’s revenue going from $457.8 million in 2022 to $513.2 million in 2023 and to $434.2 million in 2024, while EPS is expected to go from $4.45 per share in 2022 to $8.08 in 2023 and to $5.65 in 2024.

“With additional upside of $2-3 EPS in the core wireless business (Samsung arbitration, OPPO & Vivo licenses), video CE opportunities ($1+ EPS) and emerging recurring video streaming monetization ($3+ EPS), we remain comfortable with a $7.00+ EPS target over the next two to three years,” Searle wrote.

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